On Wednesday, spot gold (XAU/USD) suffered a sell-off near $1,900, which is a key short-term support level. In the process, gold is taking cues from the recent widening of the divergence between U.S. 10-year and 2-year Treasury yields. Also exerting downward pressure on gold is the inability of global policymakers to convince the market of the risks posed by the latest events at Silicon Valley Bank (SVB) and Signature Bank. Reinvigorate investor demand in the long run. In addition, recent gains in Fed funds futures favoring a 0.25% rate hike in March also supported the dollar, which in turn weighed on gold prices.
Investors were relieved by U.S. consumer price index (CPI) data released on Tuesday, as the data came in line with expectations.
The overall CPI monthly rate in the United States in February recorded 0.4%, the previous value was 0.5%, and the annual rate was 6.0%, compared with the previous value of 6.4%. The core CPI monthly rate recorded 0.5%, slightly higher than the previous value of 0.4%, and the annual rate recorded 5.5%, pinching 5.6%. Excluding the housing component, service sector prices were better than expected. The above data was considered positive by investors, so the US stock market rose sharply on Tuesday.
Underscoring the potential damage within the U.S. banking and financial system, investors became increasingly cautious and concerned about U.S. CPI due Tuesday due to the influence of Silicon Valley Bank. Therefore, the Federal Reserve (FED) may need to stop the rate hike cycle earlier than expected to counter this situation. However, stronger CPI announcements from the US could challenge this plan.
The relatively quiet US CPI releases made the Fed's job a little easier as the most interesting part of the inflation matrix - excluding the housing component - has signaled some pullbacks.
Regarding the current market dynamics, the FOMC meeting in March may be the final word on the rate hike cycle, and the market can speculate on the possibility of a rate cut by the end of 2023. However, more clarity is needed in this regard.
Ahead of the March 22 FOMC meeting, it will be important to watch to see if U.S. retail sales data signal any subdued retail activity.
It should be noted that in the case of related data such as US retail sales, industrial production and producer price index declines, gold traders do not expect much room for growth. On top of that, risk catalysts and next week's Federal Open Market Committee (FOMC) monetary policy meeting are the key catalysts for a clear direction that gold traders need to focus on.
Spot gold technical analysis
Gold is consolidating previous losses, slipping below the key support-turned-resistance level of $1,900, which includes the monthly 161.8% Fibonacci retracement and the daily 23.6% Fibonacci retracement.
As such, gold appears primed for a further drop to the previous session low of $1,895.
After that, $1,890 could be the last line of defense for gold buyers.
In addition, an upward breakthrough of $1,901 is not an open invitation to gold buyers, as the daily 38.2% Fibonacci retracement level and the middle track of the Bollinger Band around $1,905 will test the further upward movement of gold prices.
Even if the price of gold breaks through the resistance of $1905, the vicinity of $1910 and $1914 will challenge the gold bulls for further upside.
Bottom line, gold remains bearish unless it holds above $1924.
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